Home News IMF urges CBN to watch rising banks’ risk portfolios

IMF urges CBN to watch rising banks’ risk portfolios


The International Monetary Fund (IMF) has cautioned against rising risks in the banking sector with banks’ borrowings rising over N2.496 trillion from Central Bank of Nigeria (CBN) in the last three months of last year.

Data obtained from the apex bank on the inter-bank fund’s segment at the weekend, showed that weighted average interbank call rate which stood at 18.45 per cent at the end of September 2017 rose by 5.57 percentage points to 24.02 per cent in the fourth quarter of 2017.

This trend reflected the relative liquidity squeeze in the banking system in the quarter under review.

In their advisory note to the apex bank, IMF directors stressed the need to contain rising banking sector risks.

While commending the CBN’s commitment to boost capital buffers by stopping dividend payments by weak banks, the IMF experts called for an asset quality review to identify any potential capital need.

The directors noted that “an enhanced risk-based banking supervision, strict enforcement of prudential requirements, and a revamped resolution framework would help contain risks.”

The CBN puts total standing deposit facility (SDF) granted during the quarter under review at N2,494.06 billion, with a daily average of N45 billion compared with N1,536.76 billion in the preceding quarter.

It reported: “Total request for Standing Lending Facility, SLF, (converted to overnight repo) amounted to N11,733.72 billion, made up of N7,266.11 billion direct SLF and N4,467.61 billion ILF converted to the overnight repo. Daily average for the 59 transaction days (October 1 – December 27, 2017) was N198.88 billion, with daily request ranging from N67.35 billion to N383.53 billion.”

According to the official data of the bank, the total interest earned was N8.04 billion while SLF was at its peak on October 10, 2017 due to consistent mop-up activity through OMO.

“Interest payment on SDF in the review quarter was N0.89 billion, compared with N0.52 billion, at end-September 2017.”

It would be recalled that the apex bank recently through a circular directed banks with high non-performing loans (NPLs) not to pay dividends to shareholders as a strategic option of shoring up their liquidity base, the apex bank.

The circular stated: “Prior to now, dividend payout policy for banks has been as stipulated in Section 16(1) of BOFIA 2004 (as amended) and Prudential Guidelines for DMBs of 2010, which states that every bank shall maintain a reserve fund and shall, out of its net profits for each year (after due provision for taxation) and before any dividend is declared, where the amount of the reserve fund is less than the paid-up share capital.

“Globally, retained earnings have been identified as an important source of growing an institution’s capital. Advantages of retained earnings include: being a source of long-term finance; being easier and cheaper to raise than external finance; curtailment of financial risks; and improving liquidity and profitability”, the CBN added.

Despite the policy directive, some analysts observed that rather than take advantage of this beneficial means of capital generation, some banks still pay out a greater proportion of their profits as dividend, despite their risk profiles and the need to build resilience through adequate capital buffers.